Adding Up the Return on IP Telephony Investments

Updated: January 28, 2009



Calculating the TCO (total cost of ownership) of an IP telephony system can be complicated, but at least it's possible. It's also necessary for those interested in knowing the ROI (return on investment) they can expect when buying such a system. Even knowing the TCO, however, doesn't make it easy to figure out ROI. While the benefits of IP PBXes are real, they're not always easy to quantify. Some, such as the savings on equipment or telecom costs, are straightforward calculations. Others, such as making customers more comfortable in dealing with one's company, are difficult if not impossible to translate into dollars. Whatever the case, here are 10 ways a new IP phone system can repay the money a company spends on it, along with some hints about how to get at least a rough idea of the value the investment will return.




1. Save on office telecom costs. Cutting corporate phone bills is the most easily measurable benefit of moving to IP phone systems. The biggest savings come when there are a lot of calls between branches. Putting those calls on the corporate IP data network cuts or eliminates interbranch long-distance charges. Larger companies can reduce their telecom costs by thousands of dollars a month, according to Marty Parker, principal at UniComm Consulting. The reductions are greatest, though, when the branches are in different parts of the world, he noted. That's because overseas calling rates are typically not as competitive as, for example, long-distance charges within North America or Europe. Either way, measuring the savings requires little more than looking at the monthly phone bill.

2. Reduce mobile and hotel phone bills. If a lot of its employees travel, a company's cellular and hotel phone charges will likely be large. IP PBXes let business travelers make phone calls via their hotels' broadband connections using their laptops, accessing the features and functions of the corporate system as if they were at their desks. That boosts their ability to communicate efficiently even as it saves the company money. The savings on total telephony costs per mobile employee can reach 30 percent, according to Tony Rybczynski, director of strategic enterprise technologies at Nortel Networks. Here, too, the benefits are in black and white on the cellphone and hotel bills.

3. Cut phone system costs. Because IP telephony systems typically run on standard servers rather than specialized hardware, they can be cheaper for even a one-office company than a traditional phone system, according to Parker of UniComm Consulting. And when the deployment spreads to multiple sites, the savings multiply. For one thing, it's no longer necessary to have equipment in every site. Since phone traffic can travel via the IP data network to one (or, for the sake of redundancy, several) sites, a handful of servers will do the trick. That also cuts the need for system administrators in each site. Similarly, less hardware also means fewer maintenance contracts.

4. Cut desk phone costs with soft or SIP phones. The phones a company buys — or doesn't buy — can also produce equipment savings. To start with, an IP system makes it possible to replace desk phones with software. "If you want to convert a PC into a phone, all it takes is an eight-dollar headset," observed Digium Inc. CEO Danny Windham. UniComm's Parker also noted that IP phones themselves are getting cheaper all the time, particularly the SIP variety that use standardized protocol and components. "SIP phones are in the sub-100-dollar range, less than the price of the old TDM phones, or in some cases they're the same price but with lots more functionality," he said. "So in some cases you can buy them for as much as 50 percent off, or in other cases pay the same price but get lots more."

5. Cut infrastructure costs. Because corporate IP telephony runs on the same infrastructure as data applications, there's no need for additional wiring for phones. For companies that already have separate telephone wiring installed, that won't make much difference. But for those that are moving into new buildings or retrofitting old ones to bring them up to date, the savings of moving to IP can be considerable. Rybczynski of Nortel said that wiring for converged IP telephony and data service costs an average of $204 per desktop, while individual voice and data cables run $170 each, adding up to $340 or more per desktop.

6. Save on moves, adds and changes. With traditional phone systems, every time it's necessary to move, add or change users, the company that sold the system, often called a VAR, or value-added reseller, has to come on site to make the change. It requires specialized knowledge and can cost $90 to $131 each time, according to Nortel's Rybczynski. With IP PBXes, the process is much simpler. In many cases, users can move themselves, perhaps simply by sitting down at a different phone and entering their passcode. Once they do, calls to their extension will ring that phone, and they'll have access to all of their features and privileges through it. If 20 percent of a company's employees move every year, the savings of such self-administration will be significant.

7. Eliminate a receptionist or two. The IVR (interactive voice response) and ACD (automatic call distribution) features of IP phone systems can often handle calls as well as a person can. They let callers choose from options including dial by name, and make sure calls get to the right employees. That means customers dial 0 for operator less often, and may even make it possible to do without a receptionist altogether. Digium CEO Windham also notes that outbound call notification capabilities, integrated with small-business applications, can let businesses such as medical offices remind patients of their appointments, or pharmacies inform customers that their prescriptions are ready, without anyone having to pick up a phone.

8. Let (or make) employees work at home or part-time. The ability to access the full features of an IP phone system from anywhere there's a broadband Internet connection lets employees easily work from home. That is proving particularly useful for companies with call centers, since it means they don't have to bring all their agents into a single physical facility. Some in fact have all their agents working from home. "That's a perk for the employee and a cost saving for the company," noted Digium's Windham. It's not just companies with call centers that can benefit, of course. Windham described a real estate firm in San Diego that set up an IP PBX, then "sent all their employees home and canceled the lease on their office." Similarly, Robert Harris, president of consulting firm Communications Advantage Inc., noted that companies "may have valuable inside sales people who no longer want to work full time, or want to work from home." The work-from-anywhere capability lets companies keep those valuable employees.

9. Route customer calls to mobile phones, not voice mail. It's hard to measure the benefit that results when a customer call doesn't go to voice mail but is instead answered by a live person. IP PBXes' follow-me features make it easy to have calls routed to employees' cell phones when they're not at their desks. Such ease of contact may be just what it takes to keep potential buyers from going to a competitor. A related customer-satisfaction issue is the ability for IP phone systems to distribute calls based on customer information in corporate databases with which they interact. Such setups make it possible to route calls to agents with the most appropriate skills, or to agents they've dealt with before. Either way, the result is better relationships with customers. The most likely result of increased customer satisfaction will be increased revenue rather than decreased cost.

A more savings-oriented benefit of getting calls to the right person is that it increases the percentage of problems agents can handle in one call. Rybczynski of Nortel pointed out that each call may cost $20, and better call handling may mean saving that $20 on 5 percent of incoming calls. Similarly, he noted, IP-based presence detection may make it possible to bring in the appropriate expert on the first call 90 percent instead of 20 percent of the time, which will also increase first-call resolution rates. Though Rybczynski's numbers are hypothetical, doing the math on such examples points to potentially impressive savings.

10. Save time with click-to-call. Clicking a button or name on the computer screen instead of pressing keys on the desk phone may save only a few seconds per call. Multiplied by hundreds of calls, it could save quite a bit of time. In fact, click-to-call and other personal productivity features can save individual employees 30 minutes per week, according to Rybczynski. But there are less-tangible benefits as well. Some phone manufacturers have found that simply having a more user-friendly system improves the attitude and morale of employees. Given the stress workers are feeling due to the economic crisis, that alone could make a difference in productivity.

Next Steps


While many of the above benefits of IP telephony systems don't produce easily measured returns on investment, that doesn't mean there's no way to know their value. To start with, companies can hire consultants to analyze their specific business processes to identify the cost savings or revenues that certain features and functions will likely produce. They can also look for case studies or ask vendors for customer references. If the companies they look at have similar business processes, it may be possible to estimate some financial benefits. And if a vendor is confident with its products, it should be happy to provide such contacts.

Featured Research
  • The New SMB Phone Systems Comparison Guide

    Does your small or medium-size business need a new phone system? Then you're in luck! Our new, updated comparison guide helps you cut through superfluous information and narrow down your list of solution providers. Get the latest data on phone system features, pricing, and performance metrics in an easy-to-use format. more

  • How UC Can Help Your Business Survive the Holidays

    The holiday season is filled with frenzy and excitement for businesses and consumers alike. Consumers prepare gift lists, compare brands and prices, and begin shopping with a vigor that is not present most other times of the year. For many businesses, the holiday season accounts for a large profit bump at the end of each year, and companies strive to exceed their goals and keep customers happy during this rush late in the year. more

  • [Infographic] Switching Phone Systems

    There are a lot of possible reasons you might want to switch to a new phone system. The old one might cost too much or be too troublesome to operate and maintain. It might not be flexible enough. It might not be reliable enough. Or it just might not have the kinds of features and capabilities that you need in today’s competitive business climate. more

  • Business VoIP on a Budget

    Voice over Internet Protocol (VoIP) phone systems represent the next innovation of telephone connection and communication by making it possible to conduct calls over a broadband internet connection, rather than an analog phone line. more

  • [Infographic] The Advantages of Unified Communications

    Did you know that according to 8x8, the tangible ROI of a unified communications solution for a 10,000-person enterprise is approximately $15.5 million? This isn't the only way unified communications can improve your business. more